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Auto Loans - How lenders score your loan
By David J. LaLonde
Although each lender has their own internal score card most bad credit auto lenders us the SAW principle to evaluate a persons credit worthiness.
STABILITY
Stability is very important to secondary lenders. They want to believe they can find you it becomes necessary. Stability is usually demonstrated two ways:
Job Time: Lenders place more weight on job time than any other aspect of stability. Loans have been approved based on long job time alone. If you have limited time on your current job, lenders normally ask for a three year work history to determine job stability. The work history should be consistent and any gaps in employment should be explained thoroughly.
Residence: Homeowners are generally considered more stable than those who rent. Again, lenders look at the length of time at a residence and history when determining residence stability. Length in a particular geographical area may compensate for short time at a residence. Additional information may be required if you are new to an area or from out of state.
ABILITY
Can you afford the payment? For ability the lenders examine your income and debt.
Income - Income usually falls into two categories.
W2 income – This type of income is very important to a lender. This is attachable income or income that can be garnished.
Everything Else – By law this type of income is acceptable to a lender but is not attachable. Examples of this would include.
Child Support
Alimony
Social Security
Self Employment
Debt - Debt usually falls into five categories.
New car payment. Rent or mortgage.
Car Insurance.
Existing obligations (credit payments).
Payroll deductions.
WILLINGNESS
Lenders pay less attention to willingness than they do stability or ability. There are, however, two types of Bad Credit. There is "good“ bad credit and "bad" bad credit.
"Good" Bad Credit - This is the person who is only a situational credit abuser. You can usually identify the credit problem to one significant economic disaster or event.
Some examples of events which can lead to "good" bad credit are:
A divorce.
An illness or injury. Laid off from work.
Bankruptcy due to a major family problem.
Some examples of "good" bad credit attributes are:
Currently paying on an open credit card account.
An open vehicle loan which is currently being paid.
Never had a repossession.
"Bad" Bad Credit - This person is a chronic credit abuser. This customer's credit decline cannot be isolated to one event. They show a long term history of credit abuse. Below are some examples of "Bad" bad credit.
Multiple Bankruptcy's.
Multiple Repossessions, not part of a Bankruptcy.
Significant bad credit after a discharged Bankruptcy.
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